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Prince Amir Al Saud

Jun 30 Current State of Political and Socio-Economic Affairs in Venezuela

A series of mass actions and civil disobedience erupted in Venezuela as a result of continuing inflation, aggression and recurring scarcity of prime commodities as well as severe price controls.

The aggravating political situation and deteriorating socio-economic environment in Venezuela has damaged the credibility of President Nicolas Maduro to a great extent. The latest research shows that support for his government has declined to roughly 30 percent. This proportion continues to drop.

It follows that the business environment will also deteriorate considering that private corporations have to cope with additional taxes, stringent auditing, default, and sanctions within the milieu of increasing social disgruntlement. Venezuela’s stability will depend on the country’s chief executive to avert enormous social discontentment. Otherwise, this will be very detrimental to the nation’s survival. Observers from all over the world expect more interference in primary sectors of the economy until the end of the year.

Need for International Aid

No less than the President announced last December that Venezuela is in dire need of more finances from international monetary institutions to deal with deficits produced by the sharp decrease of crude oil prices. Venezuela is a member of the Organization of Petroleum Exporting Countries (OPEC).

The beleaguered Maduro asserts that his country has been affected by a financial barrier. He also assailed credit rating companies of conspiring to increase the country's borrowing costs and bring it down economically. These statements came after the crude oil basket of Venezuela declined to US$61.9 per barrel. According to the President, oil prices should stay more or less US$100 per barrel. 96 percent of the country's revenues come from its oil exports. Hence, the regression of oil prices caught it unaware.

Since all this started, the government has gradually prepared the people for an aggravating economic condition for the rest of this year. Maduro promised to uphold social spending and blamed international powers for waging a war against Venezuela. This can prove to be more damaging since local companies exporting basic commodities face additional risks of global sanctions.

Concern for Stability

The government is ever more concerned about stability and increasing frustration of the citizenry with the socio-economic environment. Yearly inflation rate went up 63.4 percent in August based on the latest official numbers. Meanwhile, fiscal shortfall remains in double-digit numbers and keeps on widening. Food shortage and scarcity of basic products have intensified due to the unavailability of foreign currencies and enforcement of price controls which are seldom modified. Analysts expect the economy to shrink 4.6 percent in 2014 and stay in recession until the last quarter of 2015.

Policy-Making

To tackle the interim crisis, the government obtained better terms and conditions for paying its debts to China. This includes the elimination of compulsory oil export quotas for settlement of loans. Venezuela also did away with income tax exemptions and augmented duties on luxury merchandise and alcohol. Tax changes were part of a legislative package that raised sanctions against private firms, gave the government more control over production of gold, permitted the Central Bank to include precious metals in the country's FOREX reserves, and limited remittances from capital investments.

Venezuela seems incapable or reluctant to make unpopular but crucial economic pronouncements. In fact, it refused to abandon the state’s approach of "Socialism of the 21st Century". Maduro’s administration deferred strategic decisions like changing subsidy on fuel prices. The government promised unification of the country's multiple exchange rates throughout 2014. However, internal disagreements continue to put off this decision until the present time. Maduro is trying to balance contradicting demands of the ruling United Socialist Party of Venezuela and the military establishment.

Disastrous Results

All these have limited and considerably slowed down decision-making of the President and his cabinet which resulted in unplanned and sometime incongruous measures. Announcements have often been made in the past but were never implemented. Inconsistent economic management has generated speculations of a possible default further than 2015. The political opposition remains divided and shackled by the arrest of its leaders.

A survey in 2014 conducted by a US-based research and management consulting firm divulged that almost 75 percent of Venezuelan citizens think that dishonesty is widespread in the government. The authoritarian government is corrupt and utilizes its power, money, media, and judicial system to maintain hegemony. Corruption is ranked very high based on international standards.

The truth is Venezuela has been adjudges as one of the most corrupt governments in the world as per Transparency International polls that started in 1995. A recent press release published in the New York Times cited that many Venezuelans complain about the serious shortages of goods like dairy products and detergents. This is traumatic for many locals who are fighting just to survive on a daily basis. Is it a Quo Vadis for Venezuela?

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Foreign Affairs Forum is a network of foreign affairs staffed by professional contributors from the worlds of journalism, academia, business, non-profits and think tanks, the FAF network tracks global developments on Great Decisions topics, daily.

The FAF network is a production of the publications, Founded in 2010 by group of GCC Diplomats and a group of concerned journalists and citizens, the Foreign Affairs Forum, serves as a catalyst for developing awareness, understanding of, and providing informed opinions on global issues.

All ideas and opinions expressed on the Foreign Affairs Forum and its affiliate networks are attributed solely to the author. The FAF Forum publications is one of the most prominent blog in middleeast and western nations with over 17 million followers.

Have a question about the FAF network? Contact our blog team at pr@faf.ae

Want to blog with us? Send your idea for a new blog, along with why you think it would make a great addition to the FAF network, two sample posts and a resume or CV to our Online Editor